Impulse Merchandising In Drug Stores - Front-End Focus

Impulse Merchandising In Drug Stores Generic Presentation

Impulse
Merchandising
At Drug Store

Checkouts

0

Impulse Merchandising In Drug Stores Generic Presentation Agenda

z Drug Store Merchandising Leadership
z Drug Store Consumer Insights
z Drug Store Merchandising Opportunities

1

Impulse Merchandising In Drug Stores Generic Presentation The Leadership Challenge

“Leaders don’t force people to follow,
they invite them on a journey.”

Charles S. Lauer

2

Impulse Merchandising In Drug Stores Generic Presentation Leadership In Drug Store Impulse
Merchandising

Formation of a leadership council including the following
manufacturers:
z Masterfoods USA, a Division of Mars, Incorporated
z The Wm. Wrigley Jr. Company
z Time Warner Retail Sales & Marketing (TWRSM)
In partnership with Dechert-Hampe & Company, an
independent research and consulting firm

3

Impulse Merchandising In Drug Stores Generic Presentation Mission Of The Group

To work in partnership with retail customers and other
stakeholders to improve store performance and enhance
consumer satisfaction through:

z New learning and consumer knowledge
z Developing benchmarks and Best Practices
z Innovative solutions for in-store merchandising

4

Consumer Based In-Store Solutions

Consumer as
Purchaser

Understand consumer Design format Implement
attitudes and purchase specific selling In-Store
Solutions
behavior strategies
5
Impulse Merchandising In Drug Stores Generic Presentation Understand retailers’
marketing strategy and

business issues

Retailer as
Business
Partner

Key Issues For The Drug Channel

Impulse Merchandising In Drug Stores Generic Presentation z Increasing Drug store count and industry consolidation have led
to increased competition

z Channel blurring has resulted in more cross-channel competition
and increased importance of convenience

z Two-thirds of Drug store sales are now from Pharmacy, but the
majority of profit comes from front of store sales

z Drug stores have lost shopper penetration and trip frequency to
other outlets

Sources: MVI, A.C. Nielsen

6

Drug Store Sales Are Skewed To Pharmacy
But Front Of Store Drives Profit

Drug Store Drug Store

58 68 Pharmacy 33
Front Of Store 68
42 32
Impulse Merchandising In Drug Stores Generic Presentation % Sales 1999 % Sales 2004 67
32
% Sales 2004 % Profit 2004

z Aging population is likely to increase trend
z Increasing front of store sales is key to profitability

Source: MVI, 2004.

7

Drug Stores Need To Increase Household
Shopping Frequency

Household Shopping Frequency
(# of Trips per Year)

Grocery 26 70
17 78
Supercenters
21 Mid-2004
Mass 25 2000
Merchandisers
Impulse Merchandising In Drug Stores Generic Presentation 15
Drug Stores 15

Convenience 15
Stores 14

Dollar Stores 13
10
Warehouse
Clubs 11
10
Source: Nielsen Household Panel.

8

A Key Opportunity For Drug Stores Is
To Increase Basket Ring

Average $ Basket Ring

Warehouse $56 $82
Clubs $49 $83

Supercenters $42 Mid-2004
$38 2000
Mass
Impulse Merchandising In Drug Stores Generic Presentation Merchandiser $33
$32
Grocery
$21
Drug Stores $19

Convenience $12
Stores $10

Dollar Stores $11
$11

z Basket size has increased, but still lags other outlets

Source: Nielsen Household Panel. Basket does not include prescriptions or gas.

9

Impulse Merchandising In Drug Stores Generic Presentation Objectives Of The Drug Store Checkout
Shopper Study

1. Understand current and emerging consumer attitudes
and shopping behavior in the Drug class of trade

2. Develop new insight on the challenges and potential
opportunities for impulse sales in Drug stores

3. Develop new concepts for in-store solutions to Drug
store impulse merchandising

10

Drug Store Checkout Shopper Study

Scope

z Participation by 4 major Drug store chains
z Research conducted in 72 stores in:

Impulse Merchandising In Drug Stores Generic Presentation Atlanta Detroit No. New Jersey
Boston Hartford Pittsburgh
Charlotte Los Angeles San Francisco
Chicago New Orleans

11

Impulse Merchandising In Drug Stores Generic Presentation Drug Store Checkout Shopper Study

Methodology
z Audits of 371 checkout locations in 72 stores
z Observations of 3,913 shoppers at point of sale
z In-store interviews with 1541 consumers
z Independent analysis by Dechert-Hampe & Co.

12

Impulse Merchandising In Drug Stores Generic Presentation Impulse Merchandising Is A Key
Element Of Drug Store Strategy

z Drug stores need to recognize and adapt to changing
consumer shopping occasions and patterns

z Drug stores can generate incremental sales through
more points of interruption with impulse items

z Checkouts are the prime locations where all shoppers
can be exposed to effective impulse merchandising

13

Impulse Merchandising In Drug Stores Generic Presentation Key Drug Store Opportunities For
Impulse Merchandising

z Opportunity to refocus checkout merchandising on
key impulse items that generate incremental sales and
increase market basket

z Opportunity to redesign Pharmacy and Photo
checkouts around consumer buying behavior

z Opportunity to utilize convenience strategy to drive
shopping frequency with key consumables

14

Impulse Merchandising In Drug Stores Generic Presentation

Drug Store
Consumer Insights

15

Consumers Expressed A Variety Of
Reasons For The Drug Store Shopping Trip

Primary Reason For Shopping Today

% Of Respondents

22% Consumables

16%

13%

9% 6% 6%
7%

Impulse Merchandising In Drug Stores Generic Presentation Prescription/ Beauty/ Groceries Beverages Candy/Gum/ OTC/Non- Photo
Pharmacy Personal Mints/Snacks Prescription Processing
Products
Medicine

z Pharmacy accounted for about one-fourth
z Personal Care and OTC accounted for a similar amount
z Consumables were a surprising 29%

Source: Drug Store Interviews.

16

Most People Chose A Store Because It Was
Near To Home Or Near Their Destination

Why Did You Pick This Store?*

% Of Respondents

Convenient - Near 70%
Home
Impulse Merchandising In Drug Stores Generic Presentation 21%
Convenient - Near 19%
Destination 15%
14%
Good Values 10%

Good Shopping
Experience

Sale/Coupon

Product Assortment

z Convenience of location leads to a case for consumables

Source: Drug Store Interviews. * Could provide multiple answers.

17

Most Shoppers Had Something In
Mind, But Not A Shopping List

Use of Shopping List

% Of Respondents

21% 5%
17%

Impulse Merchandising In Drug Stores Generic Presentation 57%

Brought A Shopping List Had A Mental List Had No List Saw Something In Circular

z The absence of a list suggests potential for impulse buying

Source: Drug Store Interviews.

18

Few People Shopped The Whole Store

Shopping Pattern

% Shoppers

16%

43%

Impulse Merchandising In Drug Stores Generic Presentation 41%

Shopped Whole Store (all or most of aisles)
Targeted Products Needed And Some Shopping
Targeted Products Needed With No Shopping

z This suggests the need for impulse merchandising at checkouts to
capture purchases

Source: Drug Store Interviews.

19

While Many Shoppers Bought Multiple
Items, Half Bought Just One Or Two

Number of Items Bought

% Of Respondents

19%

8% 29%
10%
Mean = 3.8

Impulse Merchandising In Drug Stores Generic Presentation 15% 20%

1 Item 2 Items 3 Items 4 Items 5 Items 6 Items

z There is a clear opportunity to sell incremental items

Source: Drug Store Interviews.

20

Shoppers Spent An Average Of $16.00, But
Almost Half Spent Less Than $ 10.00

Dollar Expenditure

% Of Respondents

10% 4%
8%
14% 15%

Mean = $15.97

Impulse Merchandising In Drug Stores Generic Presentation 27% $2.00-$4.99 22%
$20.00-$29.99
Less Than $2.00 $5.00-$9.99
$10.00-$19.99 $30.00-$49.99
$50.00 Or More

z There is a major opportunity to increase basket ring

Source: Drug Store Interviews.

21

Checkout Purchases Are A Key
Source Of Incremental Volume

Bought Item at Checkout Today

% Shoppers

16%

Impulse Merchandising In Drug Stores Generic Presentation 84% Not Bought

Bought At Checkout Today

z One in six shoppers bought something at checkout today

Source: Drug Store Observations.

22

Drinks, Candy, Gum And Magazines Are Most
Purchased Categories At Front-End Checkouts

Observed Purchase At Front-End Checkout
% Shoppers

(2,636) 1.0%
0.8%
Candy-Bars 5.8% Lip Care 0.8%
Drinks-Carbonated 5.2% Cookies/Crackers 0.7%
5.2% 0.7%
Cigarettes Nuts/Seeds 0.6%
0.5%
Gum 4.0% Camera 0.5%
0.4%
Impulse Merchandising In Drug Stores Generic Presentation Drink-Non Carb. 3.8% Remedies-Cough 0.3%
Magazines/Newspaper 3.8% Film 0.3%
2.6% 0.3%
Candy-Bag 2.3% Low Carb Snack 0.3%
Tobacco Access. 2.0% Phone Cards 0.2%
1.6% Energy Bars
Candy-Novelty 1.6% Cosmetics
Oral Care

Salty Snacks

Mints 1.3% Video/DVD/CD

Batteries 1.1% Meat Snack
Remedies-Cold Diet Products
Remedies-Headache 1.0% Razor Blades
1.0%

Source: Drug Store Observations.

23

The Checkout Represents A Major
Opportunity For Incremental Purchases

Bought at Checkout in Last 12 Months
% Shoppers

28%

Impulse Merchandising In Drug Stores Generic Presentation 72%

Bought At Checkout In Last 12 Months Not Bought

z 1 in 6 bought today, while seven in ten shoppers buy at checkout
regularly

Source: Drug Store Interviews.

24

Candy, Gum, Mints And Drinks Were The Most
Common Consumables Bought At Checkout

% Bought At Checkout In Last 12 Months

Candy - Bar 26.2%
Candy - Bag
Candy - Seasonal 17.2% 39.3% Candy
Candy - Novelty
8.9%
Gum
M ints 6.4%
Drinks -Carbonated
Drinks - Non. Carb. 20.2% 29.2% Gum/Mints
Drinks - Water
Salty Snacks 17.7%
Cookies/Crackers
Nuts/Seeds 10.4% 18.2%
Meat Snacks 12.5%
Low Carb. Snacks 29.1% Soft Drinks
Energy Bars
Impulse Merchandising In Drug Stores Generic Presentation 13.6%

8.6%

6.4%

5.1%

3.3%
3.0%

Source: Drug Store Interviews.

25

Batteries, Cosmetics, Film And Magazines
Are The Top Non-Consumables

% Bought At Checkout In Last 12 Months

Batteries 22.8% Oral Care 11.2%
Cosmetics 17.2% Vitamins 10.6%
9.8%
Film 15.0% Razor Blades 7.5%
Cigarettes 7.5%
Magazines 13.4% Remedies - Stomach 6.5%
Remedies - Cough/Cold 13.0% Eye Care 5.6%
Gift Cards 5.5%
13.0% Cameras 4.1%
Lip Care 3.5%
Impulse Merchandising In Drug Stores Generic Presentation Hair Care 12.9% Video/DVD/CD 3.4%
Skin Care
Remedies - Headache 12.7% Books
12.3% Tobacco Accessories
Source: Drug Store Interviews.
12.0% Phone Cards
11.8% Dieting Products

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Most Of The Consumables Have
High Purchase Frequency

Frequency Of Buying At Checkout
% Shoppers

Impulse Merchandising In Drug Stores Generic Presentation Candy – Bar Once A Week Once A Less Than
Candy – Bag Or More Month Once A Month
Candy – Novelty
Candy – Seasonal 49 35 16
Gum 39 35 26
Mints 30 42 28
Cookies/Crackers 16 17 67
Energy Bars 56 26 18
Low Carb. Snacks 46 30 24
Nuts/Seeds 47 33 20
Meat Snacks 41 34 25
Salty Snacks 38 46 16
Drinks – Carbonated 44 38 18
Drinks – Non Carb. 42 33 25
Drinks – Water 53 27 20
59 26 15
Source: Drug Store Interviews. 60 24 16
70 16 14

27

Magazines Are The Only Non-Consumable
Category With High Frequency At Checkout

Frequency Of Buying At Checkout % Shoppers

Once A Week Or Once A Month Less Than Once A
More Month

Impulse Merchandising In Drug Stores Generic Presentation Books 17 30 53
Magazines 61 24 15
Video/DVD/CD 24 17 59
Batteries 9 32 59
Cameras 14 24 62
Film 14 34 52
Razor Blades 18 53 29
Eye Care 10 46 44
Lip Care 10 46 54
Oral Care 10 43 47
Skin Care 17 38 55
Cosmetics 16 41 43
Hair Care 15 45 40
Vitamins 7 47 46
Dieting Products 25 49 26
Remedies – Cough/Cold 5 27 68
Remedies – Headache 5 32 63
Remedies – Stomach 11 28 61
Gift Cards 18 32 50
Phone Cards 27 29 44

Source: Drug Store Interviews.

28

Snacks Drive Impulse Behavior At
Checkout

Impulse Merchandising In Drug Stores Generic Presentation Candy – Bar % Planned % Impulse
Candy – Bag 36 64
Candy – Novelty 46 54
Candy – Seasonal 39 61
Gum 62 38
Mints 43 57
Cookies/Crackers 44 56
Energy Bars 55 45
Low Carb. Snacks 63 37
Nuts/Seeds 46 54
Meat Snacks 49 51
Salty Snacks 31 69
Drinks – Carbonated 36 64
Drinks – Non Carb. 57 43
Drinks – Water 59 41
58 41
Source: Drug Store Interviews.

29

Non-Consumables Tend To Be More
Destination Buys In Drug Stores

Impulse Merchandising In Drug Stores Generic Presentation Books % Planned % Impulse
Magazines
Video/DVD/CD 45 55
Batteries 66 34
Cameras 63 37
Film 80 20
Razor Blades 69 31
Eye Care 78 22
Lip Care 85 15
Oral Care 81 19
Skin Care 66 34
Cosmetics 80 20
Hair Care 82 18
84 16
Vitamins 72 28

Dieting Products 87 13

Remedies – Cough/Cold 73 27

Remedies – Headache 82 18

Remedies – Stomach 83 17

Gift Cards 81 19

Phone Cards 79 21

Cigarettes 71 29

Tobacco Accessories 84 16

Source: Drug Store Interviews. 62 38

30

Impulse Merchandising In Drug Stores Generic Presentation

Drug Store
Impulse Merchandising

Opportunities

31

Opportunity: Refocus Front-End Checkout
Merchandising To Gain Incremental Purchases

Impulse Merchandising In Drug Stores Generic Presentation Focus on the products with these characteristics:

z High penetration – many shoppers buy it, so
everyone is a potential sale

z High frequency – shoppers buy it very often, so
each store trip is a new occasion/opportunity

z High impulse – shoppers do not plan the purchase,
it is incremental

Source: Dechert-Hampe & Co.

32

Incremental Purchase Potential Is Driven By
Penetration, Frequency And Impulse

Incremental PENETRATION FREQUENCY IMPULSE
Purchase
= % Consumers x Purchases Per x % Consumers
Potential
Buying Month Buying On

Impulse

Impulse Merchandising In Drug Stores Generic Presentation Source: Dechert-Hampe & Co.

33

Base Front-End Checkout Merchandising
On Incremental Purchase Potential

Low 3 Medium 9 High 39
3 7 29
Batteries 3 Cookies/Crackers 7 Candy – Bars 21
Tobacco Accessories 3 Cigarettes/Cigars 7 Gum 21
Candy – Seasonal 3 Meat Snacks 6 Mints 21
Cosmetics 2 Nuts/Seeds 4 Drinks – Carbonated 18
Books 3 Candy – Novelty 4 Salty Snacks 15
Video/DVD/CD 3 Lip Care 4 Candy – Bag 12
Gift Cards 2 Hair Care Drinks – Water 11
Film 2 Low Carb Snacks Magazines
Energy Bars 2 Drinks – Non-Carb.
Razor Blades 2
Impulse Merchandising In Drug Stores Generic Presentation Skin Care 2 Incremental Purchase Potential
Oral Care 1
Cameras 1
Phone Cards 1
Dieting Products 1
Remedies – Stomach 1
Eye Care 1
Remedies – Cough/Cold 1
Remedies – Headache
Vitamins

Source: Drug Store Interviews, Dechert-Hampe & Co.. Analysis

34

Impulse Merchandising In Drug Stores Generic Presentation Opportunity: Design Pharmacy Checkout
Merchandising Around The Consumer

z Merchandise health-related products to
provide solution sales at Pharmacy checkouts

z Display Magazines and Books to provide
information and entertainment for consumers
while waiting for prescriptions

z Display Consumables (Candy, Gum, Mints,
etc.) to generate impulse purchases

35

A Significant Proportion Of Prescription
Customers Buy Nothing Else That Trip

% Of Prescription Customers Who Purchase Something Else

56%

44%

Impulse Merchandising In Drug Stores Generic Presentation Buy Nothing Else
Buy Something Else

z This represents a key opportunity for impulse merchandising

Source: IRI Rx Pulse, 2003.

36

Pharmacy Purchases Were Often
Related To Health

Observed Purchase At Pharmacy Checkout
% Shoppers

(738)

Impulse Merchandising In Drug Stores Generic Presentation Remedies-Cold 3.0%
Remedies-Headache 3.0%
2.7%
Remedies-Cough 2.7%
Vitamins 1.5%
Lotions 1.2%
1.1%
Remedies-Stomach 1.1%
Candy Bars 1.0%
Batteries 1.0%
Lip Care 1.0%
Candy Bag 1.0%
Eye Care
Gum

z There was low presence of impulse items at pharmacy checkouts

Source: Drug Store Observations.

37

Design Pharmacy Checkout Merchandising
Around Consumer Buying Patterns

Impulse Merchandising In Drug Stores Generic Presentation Display Offer
Magazines Related
To Provide Remedies
Information
and
And Wellness
Entertainment Products

Display Candy, 38
Gum, Mints And Snacks

for Impulse Sales

Impulse Merchandising In Drug Stores Generic Presentation Opportunity: Design Photo Checkout
Merchandising Around The Consumer

z Merchandise Photo related products such as Film
and Cameras

z Display a variety of Batteries including photo and
specialty batteries

z Provide an assortment of photography and other
special interest Magazines

z Display Consumables (Candy, Gum, Mints, etc.) to
capture impulse sales

39

Purchases At Photo Counters Are
Limited To Related Products

Observed Purchase At Photo Checkout
% Shoppers

(421)

Film 14.3%
Video/DVD/CD
Impulse Merchandising In Drug Stores Generic Presentation 4.3%
Cam eras 2.9%
Batteries 2.4%
Candy Bar 1.2%

z There was low presence of impulse items at Photo checkouts

Source: Drug Store Observations.

40

Design Photo Checkout Merchandising
Around Consumer Buying Patterns

Impulse Merchandising In Drug Stores Generic Presentation Display Display
Specialty Film/Cameras
Batteries
41
Display
Special Interest

Magazines

Shelves Of Candy,
Gum, Mints And Snacks

for Impulse Sales

Impulse Merchandising In Drug Stores Generic Presentation Opportunity: Drive Shopping Frequency With
Key Consumables

z Current frequency of store visits is dictated by
prescriptions and infrequently purchased personal care

z Frequency can be influenced by focus on convenience
and effective in-store merchandising

z Merchandising of frequently purchased items at
checkout will be key to success

42

Key Checkout Categories Can Drive
Shopping Frequency

# Annual Purchases/Household

Impulse Merchandising In Drug Stores Generic Presentation Carbonated 32
Beverages 27
Magazines 25
21
Snacks
7
Candy

Gum/Mints

z These are also high impulse categories that can generate incremental
sales

Source: A.C. Nielsen Household Panel; DHC Analysis

43

Drug Store Purchasing At Checkout Is Lower
Than Grocery On Key Consumables

% Of Shoppers Purchasing Products At Checkout

Grocery Stores Drug Stores

Gum/Mints 72% 29%

Candy 69% 39%

Magazines 48% 13%

Soft Drinks 35% 18%

Batteries 28% 23%

Non-Carb. Drinks 18% 10%

Film/Cameras 15% 15%

Cookies/Crackers 13% 9%

Salty Snacks 13% 14%

Lip Care 13% 13%

Impulse Merchandising In Drug Stores Generic Presentation Cigarettes/Tobacco 11% 13%

Razors/Blades 10% 10%

Nutrition Bars 6% 3%

Oral Care 5% 11%

Books 5% 6%

Phone/Gift Cards 5% 14%

Cosmetics 3% 17%

Audio/Video/CD 3% 17%

Source: Drug Store Interviews. z Purchasing is higher on Cosmetics, Phone Cards and Oral Care

44

Drug Stores Generate Fewer Impulse
Purchases On Key Categories

% Checkout Purchases Impulse Driven

Impulse Merchandising In Drug Stores Generic Presentation Candy Grocery Stores Drug Stores
Magazines
Gum/Mints 81% 62%
Books 74% 34%
Soft Drinks 72% 57%
Audio/Video/CD 70% 55%
Salty Snacks 65% 43%
Cookies/Crackers 65% 37%
Nutrition Bars 63% 64%
Non-Carbonated Drinks 58% 45%
Lip Care 58% 37%
Batteries 55% 41%
Film/Cameras 55% 34%
Razors/Blades 45% 20%
Phone/Gift Cards 44% 26%
Oral Care 40% 15%
Cosmetics 38% 25%
Cigarettes/Tobacco 23% 20%
22% 16%
21% 16%

Source: Drug Store Interviews.

45

Impulse Merchandising In Drug Stores Generic Presentation Summary Of Recommendations

z Checkouts are the prime locations where all shoppers
can be exposed to effective impulse merchandising

z Incremental checkout sales are driven by a focus on
items purchased broadly, frequently and on impulse

z Drug stores should refocus Front-End checkout
merchandising on impulse items and expand impulse
merchandising at Pharmacy and Photo checkouts

46

Impulse Merchandising In Drug Stores Generic Presentation For Enhanced Impulse Merchandising

z Contact a representative of Masterfoods USA,
Wm. Wrigley Jr. Co., or Time/Warner Retail
Sales & Marketing

z Visit our Website at Front-EndFocus.com

z Contact Bill Dusek or Ray Jones from Dechert-
Hampe and Company at (847) 559-0490

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